Additional Commissioner Vs Vijay Trading Company (Supreme Court of India)
The dispute originated from a GST inspection conducted on 11 May 2022 at the business premises of the petitioner, a registered company engaged in manufacturing and selling hardware goods. The Special Investigation Branch (SIB) assessed the stock through eye estimation during the search under Section 67 of the GST Act and concluded that excess stock was present. Based on this finding, proceedings were initiated under Section 130 of the GST Act, culminating in orders passed by the adjudicating authority on 24 January 2023 and by the first appellate authority on 3 April 2024.
Read High Court Judgment: No Confiscation Under Sec 130 for Excess Stock Found During Inspection: Allahabad HC
Challenging these orders, the petitioner approached the Allahabad High Court, primarily arguing that the authorities wrongly invoked Section 130, which deals with confiscation, instead of following the statutory procedure under Sections 73 or 74 for determination of tax liability. The petitioner contended that excess stock alone does not attract the confiscatory proceedings under Section 130 and highlighted that actual physical weighment was not conducted, with stock assessment being made on mere eye estimation. Reliance was placed on a previous judgment of the same High Court in S/s Dinesh Kumar Pradeep Kumar v. Additional Commissioner Grade-2, where similar issues were addressed.
The State authorities defended the orders; however, the High Court observed that the legal position on this issue was already settled through multiple prior decisions, including M/s Shree Om Steels, Metenere Limited, and Maa Mahamaya Alloys Pvt. Ltd. In these cases, the Court had consistently held that when excess or unaccounted stock is detected, the proper course is to determine tax liability under Sections 73 or 74, as mandated by Section 35(6) of the Act. Section 130, which allows confiscation of goods and levy of penalties, can be invoked only in specific circumstances where an intent to evade tax is established.
The High Court reiterated the interpretation of Section 35(6), which provides that failure to maintain proper accounts allows determination of tax liability as if the goods were supplied, but such determination must follow the procedure of Sections 73 or 74. The Court referred to detailed statutory interpretation in the Metenere Limited case, where it was clarified that the charging mechanism for determining tax liability is embedded in Sections 73 and 74, and not in Section 130. Section 130 can be invoked only in cases of contravention of the Act accompanied by intent to evade tax, which was neither alleged nor established in this case.
Further, the High Court reiterated that valuation based on eye estimation during a survey cannot be treated as a reliable basis for invoking harsh penal provisions. Prior judgments had clarified that excess stock, even if found, does not automatically amount to a contravention warranting confiscation proceedings. Moreover, the liability to pay GST arises only at the point of supply, and mere presence of excess goods at business premises does not trigger tax liability or penalty under Section 130 unless it is shown that the goods were supplied without accounting for them.
Given this consistent legal position, the High Court held that the authorities erred in invoking Section 130 in the petitioner’s case. It concluded that the proceedings were not legally sustainable, as they bypassed the mandatory procedure under Sections 73 or 74. Accordingly, the High Court quashed both the orders dated 3 April 2024 and 24 January 2023 and allowed the writ petition.
When the State challenged the High Court’s decision before the Supreme Court, the Supreme Court refused to interfere. While condoning the delay in filing the petitions, the Supreme Court dismissed the Special Leave Petitions (SLPs), finding no reason to disturb the High Court’s judgment. However, the Supreme Court clarified that the dismissal would not prevent the authorities from taking recourse to appropriate remedies available under law, thereby keeping the door open for proceedings in accordance with the correct statutory scheme.
Thus, read together, the judgments affirm the legal principle that detection of excess stock during a GST survey does not justify confiscation proceedings under Section 130. Instead, determination of any tax liability must be carried out strictly under Sections 73 or 74 following due process. Confiscation under Section 130 requires a clear allegation and establishment of intent to evade tax, which was absent. The Supreme Court’s refusal to intervene effectively upholds the High Court’s interpretation and reinforces the procedural safeguards embedded in the GST Act.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
